Risk currencies are not receiving the usual boost following last week’s US-China one-year trade truce, with the US dollar continuing to dominate markets, according to ING FX analyst Chris Turner.
Key factors supporting the dollar:
- Fed rate outlook: Market expectations for a 25bp December rate cut have fallen to 66% after Fed Chair Jerome Powell’s recent press conference. Upcoming US data releases, including the ISM manufacturing report, ADP jobs (Wednesday), and potentially JOLTS job openings, will be crucial in determining whether the dollar bear trend resumes.
- Tight US money markets: The Fed’s quantitative tightening and the US Treasury’s cash stockpile increase (from $300bn to $950bn) have reduced liquidity. Friday’s data showed banks borrowed $50bn overnight from the Fed’s repo facility at 4.00%, near the top of the 3.75–4.00% Fed rate range. Tight funding conditions typically support the dollar.
ING expects the DXY to remain near the top of its three-month range at 100.00–100.25, unless US employment data significantly shifts market expectations for a December Fed cut.
